OREANDA-NEWS. Fitch Ratings has affirmed all six classes of Freddie Mac 2012-K708 multifamily mortgage pass-through certificates and three classes of Freddie Mac structured pass-through certificates, K-708. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations of the Freddie Mac 2012-K708 are based on the stable performance of the underlying collateral pool. As of the January 2016 remittance, the pool had no delinquent or specially serviced loans since issuance. The pool's aggregate principal balance has been paid down by 7.1% to $1.127 billion from $1.214 billion at issuance. All 54 loans reported full year 2014 financial statements. Based on full year or annualized financial statements, the pool's overall net operating income (NOI) improved 19.7% since issuance. Four loans (6.3%) are on the servicer's watchlist. One loan (3.1% of the pool and a top 15 loan) is on the watchlist due to a drop in the property's net operating income (NOI) and is a Fitch Loan of Concern. The remaining three are on the watchlist due to deferred maintenance and insurance issues. Eight loans (16.54%) are defeased.

The affirmations of the Freddie Mac K-708 certificates are the result of the pass-through nature of the certificates, as they are dependent on the underlying ratings of corresponding classes for FREMF 2012-K708.

The Fitch Loan of Concern is secured by the Illume Apartments, a 316-unit multifamily community located in Dallas, TX. The loan was placed on the watchlist in July 2013 for a drop in debt service coverage ratio (DSCR) to below 1.0 times (x) due to an increase in operating expenses. Due to increased competition from new communities, the subject experienced a high vacancy rate of 15% which resulted in a 0.81x DSCR during the third quarter of 2014. The sponsor responded by lowering rents and engaged a marketing firm to rebrand the property. The new leasing strategy has gained traction and the debt service coverage ratio has rebounded to 1.05x with servicer-provided occupancy listed at 96% as of September 2015.

The largest non-defeased loan (6.88%) is secured by The Encore, a 461-unit garden style apartment complex located in Alexandria, VA. The subject is located eight miles southwest of Washington D.C. and is less than a quarter mile from I-395 which is a direct artery into the capital. The property is of superior quality to the neighboring competing assets resulting in it historically outperforming its competitive set in both occupancy and average rental rate. The subject underwent significant renovations of $45.7 million from 2006 through 2010. The units were furnished with stainless steel appliances, in-unit stackable washer/dryer units, and wood cabinets. The common area amenities were upgraded, comprising a new clubhouse, outdoor pool, fitness center, business library, and movie room.

The second largest non-defeased loan in the pool (5.03%) is secured by Stamford Apartments, a 354-unit mid-rise apartment complex located in Stamford, CT. The complex consists of six five-story buildings and parking garage located on seven acres. The complex is located one mile north of the Stamford central business district (CBD) within close proximity to the Interstate 95, Route 15, and Route 7. In addition, the community is close to a Metro North station that provides transit access into Manhattan. The units in the complex are smaller in square footage than the submarket average. As a result, the average in-place rents tend to be lower than the REIS submarket average rental rates.

RATING SENSITIVITIES

The Rating Outlook for all classes remains Stable. Due to the recent issuance of the transaction and stable performance, Fitch does not foresee positive or negative ratings migration until a material economic or asset level event changes the transaction's portfolio-level metrics.

DUE DILIGENCE USAGE

No third-party due diligence was provided or reviewed in relation to this rating action.

Fitch has affirmed the following classes:

FREMF 2012-K708 Multifamily Mortgage Pass-Through Certificates
--$11 million class A-1 at 'AAAsf'; Outlook Stable;
--$919.3 million class A-2 at 'AAAsf'; Outlook Stable;
--$930.3 million class X1 at 'AAAsf'; Outlook Stable;
--$930.3 million class X2-A at 'AAAsf'; Outlook Stable;
--$75.9 million class B at 'Asf'; Outlook Stable;
--$30.3 million class C at 'BBBsf'; Outlook Stable.

Fitch does not rate classes D, interest-only class X2-B, and interest-only class X3.

Freddie Mac Structured Pass-Through Certificates, Series K-708
--$11 million class A-1 at 'AAAsf'; Outlook Stable;
--$919.3 million class A-2 at 'AAAsf'; Outlook Stable;
--$930.3 million class X1 at 'AAAsf'; Outlook Stable.

Fitch does not rate interest-only class X3.